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Dynamics 365 Community / Blogs / The Dynamics Troubleshooter / Are You Calculating Sales T...

Are You Calculating Sales Tax Correctly? Total vs. Line in D365 Finance

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Paolo Cecchelli Profile Picture Paolo Cecchelli 624
There are setups that one does without really asking oneself why and what are the implications, and to calculate the Sales tax at the Line or Total level has been for a long time one of those for me:

General ledger > General Ledger Parameters
The setup is often overseen but it can lead to problems when checking the resulting Sales tax calculation or when exporting invoice the data to third-parties which may not apply the same logic. Moreover, different localization usually have different rules about it.


The calculation
Below is an example of a sales invoice posted using the “Total” setup for the Sales tax, compared with the result using the “Line” setup. The invoice is an invoice for 1.514,25 USD with a tax percentage of 8.1%.
In column I you can find the tax calculated using the parameter set to “Total” and the amount resulting is 122,65. In column J the total calculated with the parameter set to “Line” and the resulting Sales tax amount is 122,71, a difference of 0,06 USD:
 
Now we have two questions:
  1. Why this difference?
  2. Why the difference is settled on the line highlighted in yellow?

To answer the first question, let’s calculate the 8.1% sales tax on the Total of the invoice instead that of on each line: 1.514,25*0.081=122,65 that is exactly the sales tax we calculated for the Total.
However, if we were to apply the 8.1% on each of the line without considering the calculation on the total amount of the invoice, the resulting sales tax amount would be 122,71.
As can be seen from the screenshot below, for all the lines calculated with the “Line” method the percentage is 8,1% (column L) instead for the “Total” method  the line highlighted has been adjusted and results in a percentage of 8%:
 
So the line in yellow has been adjusted to take into account the total tax calculated.
As per the second question, by standard the difference in the calculation with the “Total” method is settled against the line having the highest Sales tax amount.


Conclusion
There is no "one-size-fits-all" answer when setting up the Sales Tax Calculation Method in Dynamics 365 Finance. As we have explored, the choice between Total and Line depends heavily on your specific localization requirements, industry standards, and internal accounting principles.

That’s all folks, see you next time!

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